The environment is ugly, plain and simple. IPO registrations have fallen off a cliff, from over 240 in 2007, to about 40 last year, to only four so far this year. Ugly.

And it gets even worse since we're learning this week from the folks at PriceWaterhouseCoopers and the venture capital industry's latest MoneyTree report, that investments in young companies are drying up faster than spit on the desert floor. Just how bad is it?

Overall, venture capital investment reached only $3 billion during the first quarter of 2009, down a whopping 61 percent from the $7.7 billion during the same period in 2008. This is the smallest sum venture capitalists have invested in start-ups since 1997, and the sharpest year-over-year decline ever recorded.

Every tech sector saw declines in VC funding, most notably so-called "clean technology," which was last year's top bread-winner as far as funding and media attention is concerned. During the first quarter of this year, however, clean tech suffered a stunning, 84 percent plunge in VC investment. Overall energy investments dipped 95 percent, media/entertainment dropped 57 percent sequentially and 64 percent from the first quarter of last year; medical technology was down 24 percent from last year's fourth quarter and 40 percent from the same period a year ago.

Here in Silicon Valley, which still attracts the lions share of VC investment, $1.2 billion was invested in 172 deals during Q1, down 43 percent and 26 percent in those two categories from the quarter before.

Just for information's sake, the biggest single benefactor of VC funding was a company called Anacor Pharmaceuticals, attracting $50 million to further its work in inflammatory and infectious diseases from Rho Ventures, Venrock Associates, Care Capital Investments and Aberdare Ventures. The company is expected to begin Phase 3 development of a topical, anti-fungal treatment for toenail infections. Look out Lamisil thingy! It's also working on treatments for psoriasis, atopic dermatitis, skin and nail fungal infections, gingivitis and acne.

Maria Pinelli runs Strategic Growth Markets for Ernst & Young and says the climate for start-ups isn't as dire as the numbers might suggest. First off, timing has never been better to blow off public markets in favor of a snappy acquisition instead, especially when companies like Apple Inc. and Cisco Systems are each sitting on more than $30 billion in cash, and other companies like Microsoft, IBM, Hewlett-Packard and dozens of others have mountains more. It might be a far easier, though possibly less lucrative exit strategy for start-ups and their benefactors looking for a way out financially. Not to mention the opportunities out there for private equity which is also beginning to see an uptick in deal transactions.

Ernst & Young says there are about 40 companies in the IPO pipeline trying to raise about $12 billion. This time last year, there were 90 companies in the pipeline trying to raise $17 billion.

Not dead, but maybe dying? Last year there was about $17 billion worth of IPOs in the pipeline and this year, at this time, the number is only $12 billion, she says. But she says it's the quality of the companies in the pipeline that deserve the attention to gauge the true sentiment in the market place. The average size of the current IPO is up to $260 million; last year it was at $180 million. That translates into a strong, proven, predictable, stable and mature company which Pinelli says will spur investor confidence and lead to even more IPOs.

"This is a great opportunity," Pinelli says. This could be the chance for "conglomerates and large multi-nationals to spin out" assets that could tap hidden value in a climate like this one.

In the meantime, VC's are scrambling, looking for exit strategies and parting with their cash, only when they're good and ready.